Regulators will extend by two years the conformance period under the Volcker Rule for banks with legacy collateralized loan obligations, the agencies said Monday.

A fight has been brewing over a provision in the Volcker Rule that could force banks to sell off billions of dollars in CLO holdings before it goes into effect in July 2015.

The rule, which is designed to restrict banks' investment in hedge and equity funds, determines that institutions have an "ownership interest" if they have a vote in removing management.

Because senior debt securities issued by CLOs include the right to fire the investment manager for cause, some have argued that banks can no longer hold those assets once the Volcker Rule goes into effect.

In a press release, the regulators said it would give banks until July 21, 2017 to "conform their ownership interests in and sponsorship of CLOs to the statute."

That did not go far enough for Rep. Scott Garrett, R-N.J., who issued a statement objecting to the compromise before it was even public. He noted that banks would still be forced to sell off their holdings, they would just have more time to do so.

"This 'fix' is no fix at all," said Garrett, the chairman of the House subcommittee on capital markets. "The underlying facts remain the same. Whether it is today or two years from now, this rule will force small and large banks to needlessly write down or hold a fire sale of these performing assets — potentially creating huge bank losses and making our financial system less safe and less sound."

The House Financial Services Committee has held several hearings on the issue, and the panel passed a bill last month with near unanimous support that would grandfather many CLOs issued before February and clarify the types of commercial loan pools subject to the rule going forward.

Garrett pointed to that legislation, arguing that lawmakers have already signaled how they would like to see the problem solved.

"Recently, Congress made it clear — yet again — that it wants banking regulators to truly solve this problem, he said. "Unfortunately, the banking regulators have carried on full steam ahead down their ideological path."

The New Jersey Republican also warned that Congress may instead have to reconcile the issue itself, and that lawmakers may look into ways to hold regulators more accountable, including subjecting the banking agencies to the appropriations process.

"Since the banking regulatory community is unwilling to correct their mistakes, Congress must do it for them," he said. "To be frank, this might also have to include Congress looking to make changes to the law such as subjecting these agencies to the appropriations process and further consolidation."

The Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Securities and Exchange Commission and Commodity Futures Trading Commission all participated in the writing of the rule. Currently, just the CFTC and SEC are subject to congressional appropriations.

The change announced Monday marks the second time regulators have altered the Volcker Rule since finalizing it late last year.

In January, regulators similarly crafted a carve-out for collateralized debt obligations backed by trust-preferred securities issued by banks with less than $15 billion in assets under the Volcker Rule to avoid potential write-downs in that business.

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